December 08, 2013

Samsung Admits that without their Higher Subsidies their Global Business Would Seriously Suffer

Earlier this year an ABI Research report surfaced that clearly stated that "the average US implied subsidy for Samsung devices is 84% as compared to Apple 74%..." They further noted that "OEMs and their carrier partners increasingly have to continue to employ highly tactical methods to make sure that their devices are subsidized to a competitive price point in order to help prevent consumers acting to avoid their product on price point alone." The subsidy problem is so out of hand in Korea that they're attempting to pass a new "subsidy law" to keep subsidies fair. Yet Samsung, the ten ton Gorilla that attended the high level meeting with Korea's top telecom regulator, basically thumbed their nose at cooperating with them in respect to handing over any information about their subsidy structure. Apparently without the ability to retain their highest subsidy program in the business, Samsung's leadership in volume sales against competitors like Apple and others would greatly suffer; which really doesn't say much for Samsung's products having any real consumer appeal.

According to a new Korean report, phone manufacturers and mobile carriers are divided over the government's move to introduce a revision to the Telecommunications Law aimed at normalizing the overly-competitive local handset market.

Samsung Electronics claims it can't publicize key fact sheets about its handset business, though the government is asking it to fully cooperate with its moves.

The Ministry of Science, ICT and Future Planning (MSIP) is teaming up with the nation's top telecom regulator, the Korea Communications Commission (KCC), to introduce the revision, better known as a "subsidy law" here, as the telecommunications industry and local operators are resorting to high handset subsidies and unlimited data plans to entice more customers.

Samsung Electronics is the only handset manufacturer which is officially opposing the government's move. LG Electronics and the smallest Pantech told the ministry that they will fully cooperate with the government.

The Samsung response is drawing attention because the objection is "rare" in a high-profile meeting organized by top government officials.

On Thursday Samsung Electronics Chief Financial Officer (CFO) Lee Sang-hoon said during a meeting in Seoul with ranking government officials and executives of handset manufacturers and local telecom carriers that "Samsung can't unveil internal data such as the amount of subsidies given to carriers, the factory price of each Samsung device and sales figures. Even if a new law takes effect, we can't release key internal data.Samsung believes the government will protect us. If such key data is leaked, then that will seriously hurt our global business."

The overly-competitive telecom market in Korea is leading to handset subsidy wars and unlimited data plans, which negatively impacts carriers, vendors and subscribers.

The Ministry of Sciences (MSIP) Choi Moon-ki stated that "It seems apparent that all interested parties need to have a new law. The MSIP will try to set up a new framework that can satisfy over 90 percent of interested parties" – which sounds like Samsung will have its way about retaining its high subsidies.

So what's the use of creating a "subsidy law" that has no teeth against the number one subsidy offender?

Sidenote:So why would Samsung make a statement like: "Samsung believes the government will protect us."? One week later the Wall Street Journal gave us good reasoning. Their report stated that "Samsung’s sales are equal to about one-quarter of South Korea’s economic output. Samsung Electronics, the flagship, posted $190 billion in sales last year — about the same sales as Microsoft, Google, Amazon and Facebook combined." Samsung is like the US banking system where the government sees them as "too big to fail."